New Nestle CEO will Stick to Current Strategy

Nestle's Chief Executive designate Paul Bulcke stressed on Friday he will stick to the world's largest food company's current strategy, targeting annual underlying sales growth of 5% to 6%.

Bulcke, currently head of Nestle's Americas operations, was the surprise choice as new CEO on Thursday as it was widely expected the Swiss company would name Chief Financial Officer Paul Polman to replace current Chief Executive Peter Brabeck.

The 53-year old Belgian national, who takes over next April, said his most important priority was to deliver the Nestle model of growing annual underlying sales 5-6%, see a sustained profit margin improvement and a good return on invested capital.

"I feel 5%, 6% is not a bad thing to have, we have prices going up and all that, we have to see," Bulcke said on a conference call. "I would confirm this model over time... where we can do more we will do more." Nestle shares had fallen 3.6% on Thursday after the surprise decision, but recovered on Friday and were up 1.76% at 519 Swiss francs.

Bulcke faces the task of continuing Nestle's evolution from a mass distributor of commodity based foods like milk and breakfast cereal into a nutrition and fitness firm focused on sparkling waters, performance foods and healthy lifestyles.

Under Brabeck, Nestle was quick to seize on healthy trends that favoured diet and sport foods, customised hospital nutrition and mineral water, as opposed to candy, chips and sweetened drinks.

"We have chosen a very proven and high performance manager," Brabeck said of Bulcke. "He is highly experienced in emerging, developing and also developed markets."

Nestle Dream Team?

Kepler Landsbanki analyst Jon Cox said Bulcke and Polman could become a "Nestle dream team," especially considering Polman's popularity with the financial community.

"Bulcke is not as well known but we are confident he can deliver the Nestle model and do not see a change in strategy," Cox said in a note.

Brabeck said it had been a tough choice for new CEO between Bulcke who has almost 30 years of broad experience at Nestle and Polman, whose position at the company will be considered over the next few weeks and may include a more operational role.

"Up till now Paul Polman has always expressed to me very clearly that being or not being CEO is not decisive for him to stay in our company. What he wants is to have an operational role, this is clear," Brabeck said.

Brabeck, who remains Nestle chairman, will also focus more on his board positions at French cosmetics group L'Oreal and U.S.-based eyecare firm Alcon . Nestle has shareholdings in both companies.

"The fact that Mr Bulcke has no background in cosmetics unlike Mr Polman, can be seen as one more small signal that, for L'Oreal, the agenda is very, very long term," said analyst Xavier Croquez at brokers Exane BNP Paribas.

Polman, a 25-year veteran of Procter & Gamble until he left to join Nestle in 2005, had been seen more likely to support a move to combine Nestle and L'Oreal over time.

Nestle owns 29% of L'Oreal and a lock up agreement with the other major shareholder, the Bettencourt family which owns 30%, expires in 2009.